EXHIBIT 10.2


 


THIRD SUPPLEMENT


TO THE MASTER LOAN AGREEMENT


(TERM LOAN)


 


THIS THIRD SUPPLEMENT TO THE MASTER LOAN
AGREEMENT (this “Third Supplement”), dated as of October 1,
2007, is between AGSTAR FINANCIAL SERVICES, PCA
(the “Lender”) and HERON LAKE BIOENERGY, LLC, a Minnesota limited liability company (the
“Borrower”), and supplements that
certain Fourth Amended and Restated Master Loan Agreement, dated October 1,
2007, between the Lender and the Borrower (as the same may be amended,
modified, supplemented, extended or restated from time to time, the “MLA”).


 


1.             Definitions. As used in this Third Supplement, the following terms shall
have the following meanings.  Capitalized
terms used and not otherwise defined in this Third Supplement  shall have the meanings attributed to such
terms in the MLA.  Terms not defined in
either this Third Supplement or the MLA shall have the meanings attributed to
such terms in the Uniform Commercial Code, as enacted in the State of Minnesota
and as amended from time to time.


 


“Fixed Rate Loan” means that portion of the unpaid
principal balance of the Term Loan converted to and accruing at a fixed rate of
interest pursuant to Section 4 of this Third Supplement.


 


“Term Note” means that certain promissory note of even
date herewith in the original principal amount of $59,583,000.00 to be executed
and delivered to the Lender by the Borrower pursuant to the terms and
conditions provided for in this Supplement and the MLA.


 


“Term Loan Maturity Date” means October 1, 2012.


 


2.             The Term Loan Amount and Purpose.  Pursuant to the terms and conditions set
forth in the MLA and this Third Supplement, Lender agrees to convert a portion
of the Construction Loan and obligations represented by the Construction Note
into a Term Loan to the Borrower in the original principal amount of
$59,583,000.00 for the purpose of refinancing the Construction Loan.


 


3.             Interest
Rate.  Subject to
the provisions of Sections 2.08 and 2.11 of the MLA and Section 9 and 12
of this Third Supplement, the portion of the Term Loan that has not been
converted to a Fixed Rate Loan pursuant to Section 4 of this Third
Supplement, the Term Loan shall bear interest at a rate equal to the LIBOR Rate
plus 325 basis points.  The computation
of interest, amortization, maturity and other terms and conditions of the Term
Loan shall be as provided in the Term Note, provided, however, in no event
shall the applicable rate exceed the Maximum Rate.


 


4.             Conversion to Fixed Rate Loan.  Pursuant to Section 2.05
of the MLA, on the Closing Date, the Borrower shall have the right to convert
all or any part of the outstanding 


 

















 


principal
balance of the Term Loan into a Fixed Rate Loan, with the consent of the Lender
which shall not be unreasonably withheld, which shall bear interest at a rate
equal to the rate listed in the “Government Agency and Similar Issues” section
of the Wall Street Journal for the Federal Farm Credit Bank or the Federal Home
Loan Bank having a maturity approximately equal to the Term Loan Maturity Date,
or another rate as agreed upon by the Lender and Borrower,  which is in effect at the time of conversion
plus 300 basis points.  Borrower shall
provide written notice to Lender at least 30 days prior to the Closing Date of
its intention to convert any portion of the Term Loan to a Fixed Rate
Loan.  Such written notice shall specify
the specific dollar amount that Borrower is electing to convert to a Fixed Rate
Loan.   Any amount subject to a fixed
rate of interest pursuant to this Section shall not be subject to any
adjustments under Section 2.06 of the MLA.


 


5.             Term Loan
Payments.  Beginning on November 1,
2007 and continuing on the first (1st) day of each month thereafter
until May 1, 2008, Borrower will pay accrued interest on the Term
Loan.  Beginning on the first (1st)
day of May, 2008, and continuing on the first (1st) day of each
month thereafter (the “Monthly Payment Date”) until the Term Loan Maturity
Date, the Borrower shall make equal monthly payments of principal and accrued
interest in such amounts as will be required to fully amortize the entire
outstanding principal of the Term Note, together with accrued interest thereon,
over a period not to exceed ten (10) years from date of this Third
Supplement.  The amount of said monthly
payments shall be recalculated and, if necessary, adjusted to account for
changes in the effective rate of interest hereunder and to maintain said ten (10) year
amortization.


 


6.             Effective Date.  Subject to the provisions of
the MLA and this Third Supplement, the Term Loan shall become effective on the
Closing Date.


 


7.             Term Loan Term.  The Term Loan term shall run for a period
beginning on the Closing Date and ending on the Term Loan Maturity Date.


 


8.             Renewal.  Lender
agrees that at the Term Loan Maturity Date Borrower may request in writing that
Lender renew the Term Loan for a period of up to five (5) years on such
terms and conditions as the Lender and Borrower may agree upon in writing.  Nothing in this Agreement shall commit the
Lender to renew or extend any other accommodations to the Borrower regarding
the Term Loan.


 


9.             Default Interest.  In addition to the rights and remedies set
forth in the MLA:  (i) if the
Borrower fails to make any payment to Lender when due (including, without
limitation, any purchase of equity of Lender when required), then at Lender’s
option in each instance, such obligation or payment shall bear interest from
the date due to the date paid at 2% per annum in excess of the rate of interest
that would otherwise be applicable to such obligation or payment; (ii) upon
the occurrence and during the continuance of an Event of Default beyond any
applicable cure period, if any, at Lender’s option in each instance, the unpaid
balances of the Term Loan shall bear interest from the date of the Event of
Default or such later date as Lender shall elect at 2% per annum in excess of
the rate(s) of interest that would otherwise be in effect on the Term Loan
under the terms of the Term Note; (iii) after the maturity of the Term
Loan, whether by reason of acceleration or otherwise, the unpaid principal
balance of the Term Loan 


 


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(including without limitation, principal, interest, fees and expenses)
shall automatically bear interest at 2% per annum in excess of the rate of interest
that would otherwise be in effect on the Term Loan under the terms of the Term
Note.  Interest payable at the Default
Rate shall be payable from time to time on demand or, if not sooner demanded,
on the last day of each calendar month.


 


10.          Late Charge.  If any payment of principal or interest due
under this Third Supplement or the Term Note is not paid within ten (10) days
of the due date thereof, the Borrower shall pay, in addition to such amount,
pay a late charge equal to five percent (5%) of the amount of such payment.


 


11.          Excess Cash Flow.   In
addition to all other payments of principal and interest required under the
MLA, this Third Supplement and the Term Note, the Borrower shall remit to
Lender, beginning with the first fiscal year end following the effective date
of this Fourth Supplement, and continuing throughout the term of the Term Loan,
the Borrower shall remit to Lender, in addition to all other installments of
interest, an amount equal to 25% of the Borrower’s Excess Cash Flow for the immediately
proceeding fiscal year (the “Excess Cash Flow Payment”),
provided however, that the total Excess
Cash Flow Payments required hereunder shall not exceed $2,000,000.00 in any
calendar year.  All Excess Cash Flow
Payments shall be applied to the reduction of the outstanding principal balance
of the Term Loan.  No Excess Cash Flow
Payments shall be required during any calendar year should the Tangible Owner’s
Equity be greater than 50% at the end of the immediately proceeding fiscal year
of the Borrower.


 


12.          Changes in Law
Rendering Certain LIBOR Rate Loans Unlawful.  In the event that any change in any
applicable law (including the adoption of any new applicable law) or any change
in the interpretation of any applicable law by any judicial, governmental or
other regulatory body charged with the interpretation, implementation or
administration thereof, should make it (or in the good-faith judgment of the
Lender should raise a substantial question as to whether it is) unlawful for
the Lender to make, maintain or fund LIBOR Rate Loans, then:  (a) the Lender shall promptly notify
each of the other parties hereto; and (b) the obligation of the Lender to
make LIBOR rate loans of such type shall, upon the effectiveness of such event,
be suspended for the duration of such unlawfulness.  During the period of any suspension, Lender
shall make loans to Borrower that are deemed lawful and that as closely as
possible reflect the terms of the MLA.


 


13.          Prepayment of Term
Loan.  The Borrower
may, by notice to the Lender, prepay the outstanding amount of the Term Loan in
whole or in part with accrued interest to the date of such prepayment on the
amount prepaid, without penalty or premium, except as provided in this Section and
Section 2.09 of the MLA.  Any
prepayment does not otherwise affect Borrower’s obligations to pay any fees due
under the MLA or this Third Supplement. 
In addition, in the event any portion of the Term Loan is converted to a
fixed rate loan, the Borrower shall pay the prepayment fee applicable to that
fixed interest rate, if any.


 


14.          Maximum Amount Limitation.  Anything in the MLA, this Third Supplement,
or the other Loan Documents to the contrary notwithstanding, Borrower shall not
be required to 


 


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pay unearned interest on the Term Note or any of the Loan Obligations,
or ever be required to pay interest on the Term Note or any of the Loan
Obligations at a rate in excess of the Maximum Rate, if any.  If the effective rate of interest which would
otherwise be payable under the MLA, this Third Supplement, the Term Note, or
any of the other Loan Documents would exceed the Maximum Rate, if any, then the
rate of interest which would otherwise be contracted for, charged, or received
under the MLA, this Third Supplement, the Term Note, or any of the other Loan
Documents shall be reduced to the Maximum Rate, if any.  If any unearned interest or discount or
property that is deemed to constitute interest (including, without limitation,
to the extent that any of the fees payable by Borrower for the Loan Obligations
to the Lender under the MLA, this Third Supplement, the Term Note, or any of
the other Loan Documents are deemed to constitute interest) is contracted for,
charged, or received in excess of the Maximum Rate, if any, then such interest
in excess of the Maximum Rate shall be deemed a mistake and canceled, shall not
be collected or collectible, and if paid nonetheless, shall, at the option of
the holder of the Term Note, be either refunded to the Borrower, or credited on
the principal of the Term Note.  It is
further agreed that, without limitation of the foregoing and to the extent
permitted by applicable law, all calculations of the rate of interest or
discount contracted for, charged or received by the Lender under the Term Note,
or under any of the Loan Documents, that are made for the purpose of
determining whether such rate exceeds the Maximum Rate applicable to the
Lender, if any, shall be made, to the extent permitted by applicable laws (now
or hereafter enacted), by amortizing, prorating and spreading during the period
of the full terms of the Advances evidenced by the Term Note, and any renewals
thereof all interest at any time contracted for, charged or received by Lender
in connection therewith.  This Section shall
control every other provision of all agreements among the parties to the MLA
pertaining to the transactions contemplated by or contained in the Loan
Documents, and the terms of this Section shall be deemed to be
incorporated in every Loan Document and communication related thereto.


 


15.          Funds Held Program.  Lender, in its sole discretion, may offer a
funds held program (the “Program”) to permit the Borrower to make advance
conditional payments on designated loans, on such terms and conditions as the
Lender may establish from time to time. 
Lender reserves the right, in its discretion, to amend or terminate the
Program at any time upon notice to Borrower. 
The following terms and conditions apply to all Program accounts in
connection with loans from Lender:


 


(a)           Advance Payments.  Subject to Lender’s rights to direct the
application of payments, an advance payment made to be applied to any amounts
due and owing to the Lender on the Loan Obligations in the future, or used for
any other purpose allowed by the Program, will be in a designated Program
account as of the date received.  If a
special prepayment of principal is desired, Borrower must so specify when an
advance payment is made.


 


(b)           Program Interest.  Interest will accrue on funds in the Program
account at such times and at such rates determined by Lender.  Lender may change the interest rate or
accrual period from time to time without notice.  The Program may provide for different
interest rates for different categories of loans.


 


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(c)           Application of 
Funds.  Funds in
the Program account for a designated loan will be automatically applied by
Lender on the Quarterly Payment Date toward payment of the installment or
related charges when the loan installment or other related charge becomes
due.  Any accrued interest in the Program
account will be applied first to the installment or related charges.  If the funds in the Program account are
insufficient to pay the entire installment or related charges, Borrower shall
pay the difference by the Quarterly Payment Date.  Funds received after a loan installment or
related charges have been billed will be applied to the installment or related
charges due.  Funds received in excess of
the billed installment amount or related charges will be placed in the Program
account unless otherwise designated as a special principal payment by Borrower
or designated for another purpose allowed by the Program.


 


(d)           Withdrawal of Funds.  Lender may, in its sole discretion, permit
Borrower to withdraw funds from the Program account in accordance with Lender’s
Program.


 


(e)           Limitations.  Lender, in its sole discretion, may restrict
the availability of any funds in the Borrower’s Program account


 


(f)            Lender Options.  The Lender may, in its sole discretion, apply
funds from the Program account without notice to Borrowers for the following
reasons:


 


(i)            Protective
Advance.  If the Borrower fails to
pay when due any amounts Borrower is required to pay pursuant to the Loan
Documents, Lender may apply funds in the Program account to pay such amounts.


 


(ii)           Account
Ceiling.  If at any time the Program
account balance exceeds the unpaid balance on the designated loan, Lender may
apply the funds in the Program account to pay off the loan.  Any excess funds will be returned to
Borrower.


 


(iii)          Transfer
of Security.  If Borrower sells,
assigns, or transfers any interest in any collateral for the loan, Lender may
apply the funds in the Program account to the remaining loan balance.


 


(iv)          Termination.  In the event the Lender, in its sole
discretion, terminates the Program, Lender may apply all funds in the Program
account to the remaining loan balance effective on the termination date.


 


(g)           No
Program Account Insurance.  Neither
the advance payments nor the accrued interest in a Program account are insured
by a governmental agency or instrumentality.


 


(h)           Liquidation of
Lender.  If Lender is placed in
liquidation, Borrower shall be sent by the receiver such notices as required by
the Farm Credit Administration regulations then in effect.  Such regulations currently provide for
advance notice from the receiver that funds in the Program account will be
applied to the loan and that funds in the Program account will not earn
interest after the receiver is appointed.


 


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16.          Security.  The Borrower’s
obligations hereunder and, to the extent related thereto, the MLA, shall be
secured as provided in the MLA.


 


17.          Representations and Warranties of Borrower.  The Borrower hereby agrees
with, reaffirms, and acknowledges as follows:


 


(a)           The
representations and warranties contained in the MLA, this Third Supplement and
the Related Documents.  Furthermore, the
Borrower represents that the representations and warranties contained in the
MLA, this Third Supplement and the Related Documents continue to be true and
correct and in full force and effect.


 


(b)           The Borrower is not in default under the terms of the MLA,
this Third Supplement, the Related Documents or any other Material Contracts to
which the Borrower is a party and which relates to the construction of the
Project or the operation of the Borrower’s business; and


 


(c)           No license, permit, permission or authority necessary for
the construction or operation of the Project has been revoked or challenged by
or before any Governmental Authority.


 


(d).          Borrower
has the power and authority to execute, deliver, and perform this Third
Supplement and any documents required under this Third Supplement and that all
documents contemplated herein when executed and delivered to Lender will
constitute the valid, binding and legally enforceable obligations of Borrower
in accordance with their respective terms and conditions, except as
enforceability may be limited by any applicable bankruptcy or insolvency laws.


 


18.          Effect on First Supplement.  Effective on the Closing
Date, the Third Supplement, the Term Note, the Fourth Supplement and the Term
Revolving Note shall supercede and replace in their entirety the Amended and
Restated First Supplement and the Amended and Restated Construction Note which
shall thereafter be of no force or effect.


 


IN WITNESS WHEREOF, the
parties have caused this Third Supplement to the Fourth Amended and Restated
Master Loan Agreement to be executed by their duly authorized officers as of
the date shown above.


 


{SIGNATURE PAGE TO FOLLOW THIS PAGE}


 


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SIGNATURE PAGE


TO


THIRD SUPPLEMENT
(TERM LOAN)


BY AND BETWEEN


HERON LAKE
BIOENERGY, LLC


AND


AGSTAR FINANCIAL
SERVICES, PCA


DATED:
October 1, 2007


 


	
   

  	
   

  	
   

  	
   

  	
  HERON
  LAKE BIOENERGY, LLC, a

  Minnesota limited liability company

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  By:

  	
        /s/
  Robert J. Ferguson

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
        Robert
  J. Ferguson

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
        Its:
  President

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  AGSTAR FINANCIAL SERVICES, PCA

  
	
   

  	
   

  	
   

  	
   

  	
  an United States corporation

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  By:

  	
       /s/
  Mark Schmidt

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Mark Schmidt

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Its Vice President

  



 


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